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Social Security Benefits and Retirement Accounts in a Divorce

As Raleigh family law attorneys, we regularly help people value and divide retirement benefits in divorce cases. One of the first assets we discuss with clients is retirement benefits.

In North Carolina, parties can either divide retirement benefits voluntarily without litigation or they can petition the Court to divide them along with the other marital and divisible assets by filing a claim for Equitable Distribution.

Social Security Benefits

Social Security Benefits

Some of our clients, no matter their amount of wealth, do not have much in the way of traditional retirement accounts due to a lack of trust in the benefits of these accounts or the belief that they have retirement covered another way.

These are often the people who are relying heaviest on future social security payments. We always make it a point to explain that, unlike private retirement accounts, Social Security Benefits will not be divided during a property division. In fact, the federal government prohibits valuing, dividing, or even considering either parties social security benefits in an equitable distribution case.

The purpose of this article is to briefly touch on and summarize what we consider to be the most important points in the context of a divorce case and the potential financial consequences they are facing.

What is Equitable Distribution During a North Carolina Divorce?

Most people who are facing a separation or divorce have familiarized themselves to some degree with the process of Equitable Distribution. In North Carolina, the division of property upon divorce is controlled by statute, specifically, N.C.G. S. § 50-20 et seq.

The statute requires that the Court identify, value, and distribute all of the party's marital assets to one party or the other. The statute also requires that the division be “equitable.” Note that equitable and “equal” are not synonymous.

What is Marital Property?

Marital Property is defined as all real and personal property acquired by either spouse during the course of the marriage and before the date of separation, and “presently owned,” except property determined to be separate property in accordance with the statute.

This definition includes retirement benefits such as pensions which although they do not pay anything presently, are nonetheless valuable for the future income they will provide. Pensions earned during the marriage are defined as marital property, valued and distributed in Equitable Distribution.

On the surface, it would seem that social security benefits would be treated in a similar fashion. If you can divide retirement benefits like pensions, which are usually earned when working, why should you not also be able to divide social security benefits? It makes sense, but the simple fact is that a Judge is prohibited by federal law from dividing or considering social security benefits of a party in a division of property.

The most important case dealing with assignability is Hisquierdo v. Hisquierdo. 439 U.S. 572 (1979), although not dealing specifically with social security, it sets out the very clear directive the Courts cannot assign the benefits or offset in property divisions this interpretation of the federal statute has been closely. The effect of the rule has and does create some seemingly unfair divisions of assets, especially for people that were counting on the other parties’ social security for retirement.

Can an Ex-Spouse Receive Benefits Outside of Equitable Distribution?

The good news is that in many cases an ex-spouse can receive social security payments based on their ex-spouse’s award outside of the Equitable Distribution Process. Under federal law, the non-contributing spouse can earn up to 50% of the contributing spouses total benefit upon divorce after a two year waiting period (unless divorced spouse is already 62 and receiving benefits and both qualify). Additionally, unlike private retirement plans, the contributing spouse will still receive their full benefit.

If the contributing spouse dies, the non-contributing spouse having reached the age of 60 will likely still receive a death benefit from social security into perpetuity.

The most crucial qualification requirement to remember here is that the parties MUST have been married at least 10 years for the non-contributing spouse to qualify. These benefit terms are much more generous than private retirement plans which can only divide the same total benefit between the two parties (instead of paying the full benefit plus 50%) as they can only pay out funds they have and actually must balance the books. Our government has imposed no such obligation upon itself.

Non-Governmental Retirement Benefits

Typical 401k, 4013b, Pension, IRA, Roth IRA, or other non-governmental retirement benefits (private plans) are generally divided according to the amount earned while the parties were married and prior to separation. These values can be simple or quite difficult to calculate depending on the contribution formula, length of marriage and plan type. In any event however the values can be calculated by an accountant with fairly minimal work. There is generally no minimum term of marriage for the non-contributing spouse to become eligible for the benefit so long as vesting is clear.

Domestic Relations Order

A Qualified Domestic Relations Order (QDRO) is required for all plans qualifying as ERISA (Employee Retirement Income Security Act) which are most plans. The account managers will not divide the benefits without a properly drafted order and the IRS will not recognize the transfer as pursuant to divorce for tax purposes. Non ERISA plans can be divided by other means or with a simple Domestic Relations Order. This would include many higher value executive packages and some smaller personal retirement vehicles. Social Security benefits are not divided the earning spouse has no fear of any reduction of benefit by virtue of divorce.

Social Security Benefits Distinctions and Considerations

Here are a few other important distinctions and rules regarding Social Security benefits versus retirement accounts in divorce actions.

Social Security benefits to the non-contributing spouse will be terminated upon remarriage. This is almost never the case with private retirement plans divided by QDRO. The benefit may be restored however, if the non-contributing spouse gets divorced. There is also a two year waiting period to qualify for the divorce benefits for the non-contributing spouse through Social Security.

Please note, there is a difference between the consideration of social security in property divisions as opposed to supporting claims such as alimony and child support.

The Federal Government no longer prohibits the consideration or even the division of benefits in support cases unlike property division. This is very important as it often allows for the use of spousal support payments at least partially make up for the failure to consider social security benefits by seeking alimony based largely on those benefits.

What Options are Available?

So, is there anything an attorney can do for a Client facing the short end of the stick in by virtue of a failure to qualify for similar social security benefits than their spouse will be enjoying? There is hope, and our statute provides room for Courts to fashion “equitable” judgments so long as an ruling does not clearly run afoul of the Hisquerdo holding.

The best answer we believe is to stress the North Carolina Statutory requirement to consider the following factors in determining whether or not an equal division is equitable:

  1. The income, property, and liabilities of each party at the time the division of property is to become effective
  2. The expectation of pension, retirement, or other deferred compensation rights that are not marital property, and
  3. Any direct contribution to an increase in the value of separate property which occurs during the course of the marriage

Clearly, pointing out social security is not “considering or offsetting it” necessarily. Secondly, the holding in the Idaho case of Phipps v. Phipps, 124 Idaho 775 (1993) offers a valuable discussion of how that Court upheld a division requiring Husband to use his multi resource retirement to equalize a divisions after reviewing social security benefits in addition to the other revenue streams. The Court did not require the payments to come from Social Security, but directly from the other spouse.

Our Judges have the ability to exercise considerable discretion and can make situations equitable in many cases where obstacles exist, so it is certainly worth making the arguments.

How this Information Affects You

As Raleigh family law attorneys, we feel the moral obligation to include some qualifications on the information set forth here herein.

This article is a summary and selection of a few interesting and useful points only, and is not meant to be a complete review of the issues discussed and you should not solely rely on this article to make decisions about your divorce or the law. The law may have changed since the writing of this article.

This article is not legal advice and is for information purposes only. Only a knowledgeable divorce or family law attorney in your state with knowledge of your situation can provide properly tailored legal advice. Additionally, this article does not address federal, military, or many other specific types of retirement accounts and benefits that can and do operate differently.

Planning for Retirement After Divorce in Raleigh

The issues raised in this article demonstrate the need to plan for retirement knowledgeably and reinforce the idea that relying on social security is a very risky move.

  1. It will not exist in its present state for much longer due to its financial condition and demographic factors.
  2. You have very little control of it under any scenario, unlike private retirement accounts which you actually own or at least have an ownership interest in (even if the account belongs to your spouse, the court will have access to it and can divide it).
  3. If you are a homemaker, be very aware of the limitations imposed on receiving ex-spouse benefits and plan accordingly.

Clearly, it is very important to make decisions equipped with specifically tailored advice based on your personal situation. Getting informed and researching issues for a divorce is a wise thing to do, however it is no substitute for the advice of a professional attorney with years of experience and who is up to date with all of the latest law and procedures in divorce cases. Never put yourself at a disadvantage if you do not have to. Know the answers before you make life changing decisions.

Consult with a Raleigh Divorce Lawyer for Help with Social Security Benefits Today

If you need assistance, the attorneys at The Doyle Law Group, P.A. can help. Just call our Raleigh office at (919) 301-8843 to get started. You may also fill out the contact form below and one of our associates will be in touch with you shortly.

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